Default and Delinquency

The default and delinquency system for private loans is much different than for federal student loans. Most important, you do not have the luxury of a nine month period if you miss payments on a private student loan. You should understand that your loans will usually go into default as soon as you miss a payment. The default period will be described in the loan contract. See section K of this private loan contract. In this contract, you are in default if you:

Fail to make monthly payments when due, or

Die, or

Break other promises in the loan Note, or

Begin a bankruptcy proceeding, or assign assets for the benefit of creditors, or

Provide any false written statement in applying for any Loan subject to the terms of this Note or at any time during the term of the Loan, or

Become insolvent, or

In the lender’s judgment, experience a significant lessening of your ability to repay the Loan, or

Are in default on any Loan you already have with this lender, or any Loan you might have in the future.

This contract also specifies that failure to receive a monthly statement does not relieve borrowers of their responsibilities and obligations. This is just a sample. You should review your private loan contracts carefully to better understand what rights you have. There may be additional default triggers in your loan agreement. The CFPB issued a consumer advisory in April 2014 warning borrowers of provisions that may lead to default even if the borrower is current on payments. The danger is that a co-signer’s death or bankruptcy will trigger a default for all borrowers on the loan. One way to deal with this ahead of time is to ask your lender about releasing your co-signer from the account.

Once you are in default, the collection process for private student loans is different than for federal loans. There is a time limit on private student loan collections and private student loan holders have fewer collection tools than the government has to collect federal student loans. Lawsuits are the main collection tools that private student lenders have.

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Please understand that we do not provide legal advice about individual cases. We request that users first review the information on this site and call or e-mail only with general questions not answered here. This web site includes links to other resources for those who seek individualized legal advice or other help not offered here. This site is for people who already have student loans and want to know more about their options and rights.